First Internet Bancorp Balances Growth With Credit Risks

First Internet Bancorp ((INBK)) has held its Q1 earnings call. Read on for the main highlights of the call.

First Internet Bancorp’s latest earnings call struck a cautiously optimistic tone, as management showcased strong revenue and margin gains while acknowledging persistent credit headwinds and macro uncertainty. Investors heard a story of accelerating fintech growth and improving funding costs, offset by elevated provisions, higher nonperforming loans and shrinking balances in some lending books.

Revenue Growth

First Internet Bancorp posted Q1 2026 total revenue of $43.1 million, a 21% year-over-year increase that underscored the benefits of a more diversified business model. Management highlighted stronger lending yields and broader fee contributions as key drivers, signaling that topline momentum is not dependent on any single product line.

Net Interest Income and Margin Expansion

Net interest income climbed to $31.6 million, or $32.8 million on a fully taxable equivalent basis, representing roughly 26% growth year-over-year. The fully taxable equivalent net interest margin reached 2.45%, expanding 54 basis points from a year ago and 15 basis points sequentially, and management guided to an additional 10–15 basis points of improvement per quarter through year-end on a static balance sheet.

Pre-Provision Profitability

Pre-provision net revenue surged 51% year-over-year to $18.1 million as higher revenues dropped meaningfully to the bottom line. Noninterest expenses rose only 6% to $25.0 million despite continued spending on technology and AI, suggesting operating leverage is improving even as the bank invests in future growth.

Fintech and Banking-as-a-Service Momentum

Fintech and Banking-as-a-Service remain standout growth engines, with average fintech deposits reaching $2.4 billion in Q1, up more than 186% from a year earlier. Payments volume processed topped $82 billion, up over 260% year-over-year, while fintech fees rose to about $1.5 million in the quarter and BaaS revenue grew more than 200% year-over-year on both quarterly and trailing 12-month bases.

Deposits and Funding Mix Improvement

Total deposits rose to $5.0 billion, up 3% sequentially and 1% year-over-year, while the cost of interest-bearing deposits fell 56 basis points to 3.45%. Fintech deposits carried an approximate 3.19% cost compared with maturing CDs at 4.19% and new CDs around 3.62%, giving the bank a visible path to lower funding costs as higher-priced time deposits roll off.

Capital and Liquidity Strength

Capital and liquidity metrics remained solid, supporting management’s appetite for selective growth despite credit noise. The total capital ratio stood at 12.5% and the Common Equity Tier 1 ratio at 8.97%, and leadership emphasized substantial liquidity coverage as a buffer against market volatility and potential credit surprises.

Technology and AI Investments

Investments in technology and AI are starting to deliver tangible benefits in efficiency and customer experience, according to management. The bank deployed third-party fraud detection agents and a virtual customer service agent that now resolves roughly 45% of inquiries, contributing to early Net Promoter Scores running ahead of industry averages.

Commercial Lending Production and Pipelines

Total loans stood at $3.8 billion, with notable production in single-tenant lease finance, construction lending, wealth advisory lending and equipment finance. Management described robust pipelines across multiple commercial verticals and plans to put excess cash to work in higher-yielding loans, which should support margin expansion if credit trends cooperate.

Elevated Credit Costs and Provision

Credit costs weighed heavily on Q1 results, with a $16.3 million provision for credit losses and $15.8 million of net charge-offs. Management expects provisions to remain elevated in the second quarter before moderating in the back half of 2026, implying that near-term earnings will stay sensitive to asset quality outcomes.

Nonperforming Loans Increased

Nonperforming loans climbed to $61.6 million, or 1.63% of total loans, reflecting stress in select portfolios. Excluding fully guaranteed SBA balances, NPLs were a lower 1.22% of loans, while the allowance for credit losses stood at $56.5 million, or 1.5% of loans, equating to 92% coverage of NPLs and 122% if guaranteed SBA balances are excluded.

Year-over-Year Loan Contraction

Despite healthy production, total loans decreased $479 million, or 11%, from a year earlier, with Q1 balances growing only 1% sequentially. Early payoffs and maturities in Franchise Finance, Public Finance, RV-related portfolios and investor commercial real estate pressured growth, underscoring the challenge of expanding the loan book in a competitive and uncertain environment.

SBA Production and Gain-on-Sale Dynamics

SBA origination volumes softened due to normal seasonality and tighter underwriting standards, and management plans to retain more new SBA loans on balance sheet for longer seasoning. This strategy will likely reduce near-term gain-on-sale income but should bolster net interest income and margin over time as retained loans earn spread income.

Franchise Finance Credit Challenges

Franchise Finance remained a sore spot, with elevated net charge-offs as the bank accelerated workouts and resolutions to clean up problem credits. The effort is yielding some progress, as nonaccrual franchise loans have fallen to their lowest level in four quarters, but special assets work remains active and continues to shape the risk profile.

Macro Uncertainty and Guidance Risk

Management repeatedly referenced heightened macroeconomic uncertainty, pointing to volatile energy prices and geopolitical risks as factors that could influence credit and growth. They acknowledged that the previously stated 15–17% loan growth target may be ambitious given higher-than-expected payoffs and the evolving backdrop, and signaled a willingness to adjust expectations if conditions warrant.

Forward-Looking Guidance

Looking ahead, management broadly maintained its January outlook, including targeted net interest income of $155–$160 million, total fee income of roughly $33–$35 million and operating expenses of $111–$112 million. They still aim for steady NIM expansion of about 10–15 basis points per quarter and a loan-to-deposit ratio moving from the mid-70s to roughly 85–90% by year-end, while keeping provision for credit losses near prior estimates and prioritizing capital and liquidity preservation.

First Internet Bancorp’s earnings call painted a picture of a tech-forward regional bank balancing impressive fintech growth, margin gains and disciplined costs against a tougher credit tape and slower loan expansion. For investors, the story hinges on whether credit costs peak as expected and whether management can convert strong pipelines and lower funding costs into sustainable earnings growth through 2026.